Americans with a credit score of 620 or below pay about $3,400 per year for essential financial products in what Bankrate, in a\u00a0new report<\/a>,\u00a0calls a “subprime tax.”<\/p>\n The “subprime tax” comes in the form of higher interest rates<\/a> on products such as mortgages, credit cards, auto and personal loans, and pricier premiums on auto and home insurance.<\/p>\n Borrowers with a score of 620 pay, on average, $1,330 more annually in mortgage loan interest than those with credit scores of 700, Bankrate found. Compared with that group, subprime borrowers also pay $745 more annually in auto loan interest, $514 more in auto insurance premiums, $398 more in home insurance premiums, $328 more in personal loan interest, and $89 more in credit card interest.<\/p>\n If a borrower doesn’t improve their score, the subprime tax can snowball over the long run, Bankrate found. Over five years, Bankrate’s report said, the subprime tax can cost about $17,016, and over 30 years, the cost is roughly $102,094.<\/p>\n More from Personal Finance: Bankrate said the insurance premium and debt calculations were based on national average data from Bankrate, Experian and FICO. Bankrate defined a score of 620 and lower as subprime, and a score of 700 and higher as prime.<\/p>\n The subprime tax affects roughly 21% of American adults, Bankrate estimated.<\/p>\n As of April, the average FICO credit score<\/a> in the U.S. is 715. The score ranges from 300 to 850; the higher the credit score, the better.<\/p>\n The Bankrate report showcases the value of having a good credit score: A good score increases your likelihood of being approved for loans and of receiving better financing terms, experts say.<\/p>\n However, “you don’t need a perfect credit score to get the best loan terms,” said Ted Rossman, a senior industry analyst at Bankrate.<\/p>\n “Generally speaking, lenders stop distinguishing once you hit the mid-700s and above,” he said.<\/p>\n Why a low credit score can cost you<\/p>\n Your credit score is a “prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports,” according<\/a> to the Consumer Financial Protection Bureau.<\/p>\n “It’s like a standardized test score,” said Rossman.\u00a0<\/p>\n If your credit score is low, lenders may think you are more likely to pay late, said John Ulzheimer, a consumer credit expert. To offset that risk, banks and lenders typically charge the borrower higher interest rates.<\/p>\n Lenders have different definitions of what makes a good credit score, Ulzheimer said.<\/p>\n Even so, experts say, once your score gets to a certain point, or somewhere in the mid-700s, you are generally in a good place in terms of risk.<\/p>\n “The odds of you going delinquent at some point are so low that the lender is happy with taking the risk with you,” Ulzheimer said.<\/p>\n To improve your credit, first take a look at your credit reports<\/a>, issued by the three credit reporting bureaus: Experian, TransUnion and Equifax. You can request them for free via annualcreditreport.com<\/a>. Your credit scores are based on the information in those reports.<\/p>\n Make sure the information in each of the reports is correct, said Matt Schulz, chief credit analyst at LendingTree. If there’s a mistake, which can happen, correcting it can help improve your credit.<\/p>\n Otherwise, the “most actionable way” to improve your score is by working toward paying down any credit card debt, said Ulzheimer.\u00a0<\/p>\n “If you can pay down or pay off credit card debt, your scores are going to improve,” he said.<\/p>\n Reducing your debt can improve your credit <\/a>utilization<\/a> ratio<\/a>, or how much you owe relative to how much credit you have available to you.<\/p>\n This factor makes up 30% of your score, according<\/a> to FICO. Experts typically advise keeping your credit utilization under 30%, but a 2024 LendingTree study<\/a> found that consumers with the best scores had utilization ratios of around 10%.<\/p>\n Another easy way to boost your score is by making on-time payments. Payment history makes up 35% of your score<\/a>, according to FICO.<\/p>\n As you increase your credit score, look for ways to benefit. For example, ask your credit card issuers if you can qualify for a lower rate<\/a>, and see if your insurers will reassess your policy premiums. Gauge whether it’s worth refinancing<\/a> any current loans.<\/p>\n","protected":false},"excerpt":{"rendered":"Solstock | E+ | Getty Images Having a low credit score can come at a significant cost, according…\n","protected":false},"author":2,"featured_media":77260,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[1531,28,122,54685,5673,101,9007,113,147,1909],"class_list":["post-77259","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-breaking-news-investing","tag-business","tag-business-news","tag-credit-report","tag-credit-score","tag-economy","tag-interest-rates","tag-investment-strategy","tag-personal-finance","tag-personal-loans"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/77259","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=77259"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/77259\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/77260"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=77259"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=77259"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=77259"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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